More legislation targets state's cash balance plan

Jeremy AlfordCapitol Correspondent

Published: Monday, March 4, 2013 at 9:18 a.m.

Last Modified: Monday, March 4, 2013 at 9:18 a.m.

BATON ROUGE — A second lawmaker has filed a bill to suspend the state’s controversial cash balance plan and another is pushing separate legislation to exempt judges from the new public retirement system set to go into effect in July.

The Louisiana State Employees Retirement System and the Teachers Retirement System of Louisiana want the Legislature to delay the plan, meant to somewhat mirror a 401(k) because of less investment risk, and replace the traditionally defined benefits plan for future hires.

It was the lone element of Gov. Bobby Jindal’s 2012 retirement overhaul package to be passed into law, but its implementation remains in doubt as decisions linger with the courts and Internal Revenue Service.

Cortez pointed to a court challenge by the Retired State Employees Association, which Judge William A. Morvant of the 19th Judicial District Court sided with and ruled in January that the Legislature did not have enough votes to pass the cash balance plan.

The decision is on appeal but could force the plan to be rerouted through this year’s regular session, which convenes April 8.

Last summer, the Division of Administration also sought determinations from the IRS on whether the cash balance plan would provide a benefit equivalent to Social Security and not affect the tax status of the other existing retirement plans.

No answer has been supplied by the IRS yet, and Cortez said “it is extremely unlikely that a private letter ruling will be issued prior to July 1, 2013.”

There is also House Concurrent Resolution 2 by Rep. Joe Harrison, R-Napoleonville, who represents portions of Terrebonne and Lafourche parishes.

Harrison’s bill would suspend the cash balance plan until July 1, 2014, or until the IRS delivers its declarations, whichever comes first.

Considering the cash balance plan stays in play, Senate Retirement Chairman Elbert Guillory, D-Opelousas, has filed unrelated legislation to back judges out of the new system.

Phone messages and an email seeking comment from Guillory went unanswered this past week.

Judges are members of the Louisiana State Employees’ Retirement System or at least those who originally took their oaths of office beginning in 1983.

Guillory was the lead Senate author for the governor’s pension package last year.

Harrison said he is eager to hear why judges should be excluded from the plan while other state positions are supposed to remain under it.

“I also wonder if other positions will be added to the exemption list,” he said.

In theory, the cash balance plan is a payroll contribution plan anchored by the investment returns on that contribution.

While Jindal said the new system will not create any new retirement debt for the state, he added the state cannot promise a benefit greater than what it can get in the market.

Investment gains are passed on to the employee under the plan, but investment losses are not, he said, and account balances will not be impacted by a market downturn.

Employees can receive a lifetime benefit at retirement by choosing an annuity, but they also have the option of taking their account balance.

If a state employee leaves before retirement age, he or she can roll over their savings into an IRA or other account.

In an early assessment of the cash balance plan, the Baton Rouge-based Public Affairs Research Council issued a report cautioning that the “impact of the cash-balance plan will depend on what takes place in the future with regard to investments and other unknown factors, and so the anticipated advantages of adopting the plan will vary depending on assumptions about those future events.”

Under most sets of assumptions, “the cash-balance plan carries less risk than the current system of inflating the unfunded liabilities in the retirement systems,” the report stated.

It furthered advised decision-makers to design a program to provide employees a fair level of retirement benefits based on realistic expectations, “especially considering the fact that Louisiana’s state government workers do not participate in the federal Social Security program and therefore lack that financial cushion in their later years.”

During the 2012 session, Harrison unsuccessfully pushed an amendment that would have guaranteed retirees Social Security under the plan.

Until more concrete forecasts can be offered for outcomes connected to the cash balance plan, Harrison said the Legislature should at least vote to delay its implementation, which lawmakers are expected to debate at length this spring.

Jeremy Alford can be reached

at jeremy@jeremyalford.com.

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